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EP 361 – Pricing Guides

Oftentimes, people are asking the sellers what they’re looking for. However, a lot of sellers don’t want to give a price point because they don’t want to price against themselves or they want to get the highest and best. If they don’t give you a true price, then check out the Stair-Step model which is a guide for pricing non-performing notes. On this episode, Scott breaks down some of the pricing guidelines to consider when pricing your note and CFDs.

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Pricing Guides

I want to discuss the pricing guides for your note business especially pricing for a non-performing first, for your contract for deeds and some are focused solely on the first lien position. I’m not going to talk about seconds, I’m not going to talk about thirds. I’m going to talk about what you should be doing in the market today with the pricing been where it’s at. It’s all about pricing guides. What I want to talk about is first and foremost, I’m getting emails from people like, “I spent offers. The seller says my offers were way too low. I’m freaking out. They say I’m smoking crack in my pricing.” The thing I would tell you to do is to push back and tell them that they’re smoking crack. At Note Night in America, we had Joel Markovitz on to talk a little about some of the assets. He sends me a list over, we worked on it here in the office to get up to talk about it and then the seller changes their mind and pulls the list. What’s funny is that they decided they wanted to sell the whole thing in one tranche, which I chuckled.

I seriously laughed about that when I looked at the asset. There’s no way they’ll be able to sell the whole thing off to one buyer. They’ve got some nice asset. They have some stuff in there that had been vacant for a while, so they were smoking some crack. Anyway, Joel comes back, they think they bought the golden goose and stuff and I chuckled on that stuff. I’m like, “That’s fine, don’t waste your time.” We went to a second round, he brought on some assets though too. They’re smoking a little crack, wanting something in the 88% range on an REO. That’s what I want to talk about with you guys. What is pricing out there looking like? We were talking about pricing on owner finance notes. I’m not going to talk about owner finance notes. I’m going to talk about the non-performing market where we see things that, especially on first liens and contract for deeds. Oftentimes people are asking the sellers, “What are you looking for?” A lot of them don’t want to give you a price point back because they don’t want to price against themselves or they want to get the highest and best, which you can understand that. I always tell people that if they don’t give you a true price then go off to the Stair-Step model.

The Stair-Step Model

The Stair-Step model, this is a strict guide. I love it. There are people that bash this model saying it’s exactly what pricing should be at. I have always said this is a guide. It’s not a hard fact aspect. If somebody is not going to give you a price point, what are you going to do? Pull a price out of your ass? They’re going to pull it out of mid-air and throw it on the tape? No, you want to have some sort of guidelines for what you’re doing and the best advice I can give all of you is this is a guide. I’m talking about some of the things that affected you going up or going down. This is often non-performing notes, not REOs, not a newly originated aspect, not performing notes, not contract for deed. This is true first liens where they’ve got a mortgage on it, that you’re buying the debt on it. Consider it a Stair-Step, you start low and you walk your way up. There are two phases to the staircase. We’ll start at the mid-price point of $50,000 assets. If it’s got a value of $50,000, you probably want to start your pricing somewhere in the mid-50% range, 55% roughly. This is if you’re buying a one-off. If you’re buying in bulk, you should bring the price down a little bit. It’s a short guide, there are some things that will affect this amount.

I don’t want people flipping out on me and comments on Facebook, “That’s not what the seller told me.” Just chill a little bit. It’s a guide. If you’re something that’s in $50,000 value range as is, not ARV. If somebody tells me they’re not going to make an offer, I put around 55% of the assets I provided that the UPB is a lot higher. If the UPB is a lot less, it’s an equity deal. What you have to realize is if there is a lot of equity, like say the house is worth $50,000 but the borrower only loans $25,000, you’re not going to make an offer at 55% of $50,000. That would be like $27,500. It doesn’t make any sense. You would drop it down at that point. We’ll talk about equity, so chill off of equity deals. If the asset has a value in the $40,000 range, you would offer roughly 45% as a starting point. That’s 45% of $40,000. That comes down to $20,000 something if you go down in the $30,000 range. The asset’s worth $30,000, 30% to 39%, roughly 35%. Anything below $30,000 valued, I wouldn’t offer above 25%. The asset has got to be in good condition.

The reason for why I offer so low on $30,000 below asset because if you have an expense, an AC still costs the same across the board. A furnace costs the same across the board. If you got to put paint and carpet, it may be a smaller value to the asset, but you still have costs, a roof will cost and things like that. A lot of people avoid lower value assets. That’s great. There’s nothing wrong with avoiding but if you’re going to buy, you have to realize that you should not be paying above $0.30 on the dollar for assets below $30,000. You’ll face issues, especially if it’s a longer foreclosure state. Let’s move back up. Anything below $30,000 fair market value, it’s a 25% offering of that, provided that the unpaid balance or they owe more than what the property’s worth. $30,000 range, 35%, $40,000 range, 45%, $50,000 range, 55%.

If you start getting above higher priced assets, values more than $60,000, you’re going to start seeing especially behind one-off assets where the sellers are going to probably start wanting you to be pushed closer to the 60% range, 60%, 65% range. Here is where the Stair-Step model guide changes on you. You have to look at foreclosure timeframes. If it’s in a state like Texas, Georgia, states like that have fast foreclosure time frames, that pricing point is going to go up a little bit. Especially in Texas, you’re probably going to see something closer to $0.70 on the dollar. Why does that freak everybody out? In Texas, it takes 30 days roughly to foreclose. You can do things relatively quickly and inexpensively in Texas. How would that number skew south? If you’re in a longer foreclosure state, New Jersey, South Carolina, maybe parts of Florida, if it’s not so hot, Florida’s hot. A lot of people like Florida so that they’re overpaying in Florida for the last year or two. That’s what you have to realize if the market’s appreciating and it’s a say six-month timeframe to foreclose.

Pricing Guides: Some markets are really hot, others are really long. Before you finalize pricing, it’s important to take a look at the days on market.

The market’s a hot market, you’re going to see that percentage across the board inch up a little bit, 5%, maybe 10% depending on how fast that markets are appreciating. Some markets are hot, others are long. That’s why it’s important for you before you finalize pricing to take a look at the days on market. How long are the properties taking to move? Is it six months? Is it taking over six months to foreclose? That’s why you adjust that model up and down a little bit or that dial, I guess you could say, depending on where that market is in the foreclosure timeframe. A number that you should reduce but you bid by is the taxes owed. If there’s an astronomical amount of taxes like $5,000, if you’re at 55% on a $55,000 asset, take 55% minus taxes and then go off of that, because taxes got to be paid. One of the most important factors I can tell each and every one of you, this is a guide. The whole idea is if a seller doesn’t give you a price and you make an offering and they countered back, work the numbers because the numbers make sense. Take a look at those considerations.

Things To Take Into Consideration

Foreclosure timeframes. Does the property need workers? Is it in good condition? Is it occupied? Is it vacant? What’s the likelihood of it to modify? Then you have to look at your exit strategies as well about what’s the ROI is going to be. If it’s occupied and you’ve checked the taxes and the taxes are paid, and then you’ve also looked and seen that utilities are up to date, the buyer’s got a lot of pride of ownership, then it’s probably going to be a modification and reinstatement of some sort. Looking at that and running those numbers off, the offering is still going to be important to see if it is smoking crack. That’s why I always like to joke about when I see bids that come in way overpriced. If somebody’s selling you above 70% for the most part, it’s not going to make sense to you. They may think they’ve got the golden goose but that doesn’t make sense. You have to look at also some other considerations. Is the asset a bankruptcy deal? Bankruptcy is going to affect your pricing point too on your assets. The BK chapter is thirteen. What does that mean? That means it’s probably a long month. It means you’re probably going to have about a five-year payment plan on that. That increases the value of the note.

You’re going to expect to pay more for BK chapter thirteen note because it’s cashflow. That probably can go closer to $0.70, $0.80 on the dollar because of the BK Chapter 13. The BK Chapter 7, that’s a liquidation, a debt where you take the property back that’s going to be foreclosure. You’ve got to look at the timeframe on that. The most important thing as our good buddy, Dan Zitofsky, likes to say, “You’ll never know. You have to expect for the worst.” I agree to that to a specific point on things. It was a vacant asset. You better expect it to have a need work done. Besides just foreclosure time frames, taxes, condition, is it going to be a mod? Is it occupied? Is it vacant? If it’s vacant, I will be deducting aspect, especially if it’s been vacant for a while. If it has been vacant for a while, you’ve probably got weedlings. You probably got taxes owed. You may have people that are broken into the house. You may have squatters. This is why I crack up when people counter back, “The price doesn’t make sense.” Is that an asset you still like? Are you not too far off? Is your bid a little bit south of where their bid is within $5,000, $10,000?

If it’s close, then say to the realtor, “I’ll take a look.” Maybe you can come back with a true valuation because you have to realize most of these hedge funds, most of these banks and these distressed non-performing notes that we see, haven’t had anybody go look at a property in a year. They don’t know what kind of conditions it’s in. If you come back with photos or real pictures of the property and provide more proof in your bids, you’ll have a stronger leg to stand on when it comes to the countering back and forth. Does that make any sense? I’d love to hear back from you. Feel free to shoot me an email at Scott@WeCloseNotes.com. We’re all across and all over the smart channels that are across the board. If you’re listening on iTunes, Stitcher as always, please feel free to drop me a message at Scott@WeCloseNotes.com as well and we’d like to talk with you about that.

Let’s do a quick little recap. Anything below $30,000, you probably should insist on a first lien position. You probably shouldn’t be offering above $0.25 of the value in the $30,000 assets, 35%. $40,000 assets, 45%, $50,000 assets 55%. Above $60,000, you’re going to start seeing a higher price point because the equity, the check amount is bigger. $100,000 asset, you probably pay somewhere in the mid-50s to 60s. I would not go above 70% unless it is in a state like Texas with a fast foreclosure or the foreclosure is 90% of the way done and the property is in great condition. I’ll get this contract for deeds in a second. That’s the Stair-Step method from the below 30, upwards of that. Take a look into foreclosure timeframes, higher foreclosure timeframe. You’d reduce your bid with high taxes. You reduce your bid by taxes owed. If it’s in good condition, great, that’s a good thing. It’s a hot market, it’s an appreciating market and you’re going to ride that market up. I made a lot of money in Florida by buying the right price and writing it up or foreclosed on things. I would not necessarily count on the extra juice on appreciation. I would focus on where my number’s at. If it’s vacant, I’m not a fan of it. If it was a vacant asset, you’re going to have to expect some work to be done. That’s why you always want to be conservative. If you see the asset is vacant, make sure you put eyes on it and see if you can’t sneak inside with a boot hammer.

Contract For Deeds

A contract for deeds is a different animal of aspects. We have a question here, “What are your thoughts on new CFDs with less than ten total payments that are non-performing?” I’ve got no pricing expectations. I use basic Stair-Step and they came back with 60% to 70% expectations. We’re a bit upward because they look clean.” I would never pay $0.70 on the dollar for something that’s a non-performing, new CFDs, less than a year old. What I will look at is a couple of things on contract for deed. A contract for deed is going to be an asset that has a value of less than $50,000 for the most part because most investors or hedge funds aren’t going to do a CFD for an asset over $50,000. They’re probably going to do a true first mortgage and use a mortgage loan originator to write a mortgage on it or financing. A contract for deed is something that they are offering on assets below $50,000 because it’s an easier eviction if you’re in a cancellation of contract, if the borrower doesn’t pay. If they’re not performing less than a year, I’m going to look at a couple of things specifically with a contract for deeds. I’m going to look at the amount of down payment they put down there. If they didn’t put anything down, $500 or less than $1,000, I would treat these as REOs.

Pricing Guides: Keep in mind to have eyes on the property. Are they still occupied? Are there utilities? Call the utility departments and check the taxes owed on that stuff.

You have to look at the cancellation timeframe in those states too. Michigan’s going to be faster than Ohio. Ohio is going to take six months to finish the eviction and cancellation of contract and go from there. Keep that in mind, eyes on the property. Are they still occupied? Are there utilities? I would be calling the utility departments and checking taxes owed on that stuff. The things you need to keep in mind too is if it is occupied, what’s your return going to be if you do get it reperforming? I don’t like to pay about $0.50 on the dollar. I prefer to be in the 40s of contract for deeds because of the fact that they often are lower valued assets. They’re probably 30s most of the time because if they’re usually lower value assets, then you’re going to need some work. Lower value assets, depending on where they’re located may not have the best borrower classification, the borrower pool, to draw from. Most of the cases if they don’t get reperforming, we’re moving to eviction. We’re looking to sell it and not looking to re-originate. If they think they’ve got the golden goose of the 60s and 70s, I chuckle with that because it doesn’t make sense.

They can try and that you can always adjust your bid back if it makes sense for you on a one-off basis or a small book basis. They give you numbers. They counter it back. Take a look at it and go from there. It’s still the same thing, how much in taxes are owed? How much utilities? How clean is the property? Was it sold the contract for deed as is because it needed work? That’s the thing you need to look at newly originated CFDs. Just be careful about that. Hopefully, that makes sense. The thing to keep in mind as well is the only time I might pay above $0.60 on the dollar is if there is a lot of equity in the deal. Going back to our previous comment, the only time I can go above $0.70 on a dollar is if there’s a ton of equity. Let me give you an example.

Let’s say the house is worth $50,000, they only owe $25,000. Then I would probably come in at $0.60, $0.70 of the unpaid balance and offer somewhere in the $20,000 for that, knowing that I can evict and take the property back in as long as there’s a lot of equity on the backend side. That’s on a contract for deed. On a non-performing note, I’m still going to be very conservative on my bid. If I take the amount owed, the unpaid balance plus the back payments and I add those numbers together, and that number erases the equity, then I am buying a note where there has no equity on it. I’m still going to offer below UPB. Never go off a payoff. There are some sellers, some funds that want to go off and pay off their sales price. I’m sorry, that doesn’t make sense to me. That’s great but I’m not going to go off an unpaid balance. That’s where this market is at, that’s what we’d bid off of. I’m not going to bid off the unpaid balance. I don’t care if it’s $30,000, I’m going to go off of the UPB. If there’s a lot of equity, I’m still going to be conservative. You have to realize if you foreclose, you’re going to get paid off on what your payoff is. If your payoff is way below the value of the house, it goes to foreclosure and it sells above what you’ve paid, that money doesn’t come to you. That money goes to the borrower. You have to keep in mind, you can tie up your money for a while, go it through foreclosure and only get a small amount.

Don’t bid high percentages off of UPB if there are a lot of equity. You still have to look at the value of the house and determine it. That’s why I often don’t buy assets with a lot of equity. Contract for deeds, I’ll do that off of unpaid balance because there’s an eviction. It’s not a foreclosure. That borrower is not going to be entitled to that equity unless it’s in a state that requires you to foreclose or it falls into that. If they pay 20% down at the time of purchase, that original payment got 20% equity by the time you foreclosed but they paid 20% down payment at the time of purchase. People are trying to sell stuff that doesn’t make sense. The beautiful thing about this time of year is a lot of that LSD and crack will wear off as we get closer to the end of the year. People get more motivated to move items and so what I would do is follow back up. If they countered back higher than what you want to pay, follow back up with them in 30, 60 days. As they hold on to that asset every month, they’re incurring costs, they’ve been paying taxes or other things along the way. They may come to another price, who knows.

The biggest thing I can tell you out here is to realize what you’re looking at. It’s not just a hard number. I’ll run numbers in a spreadsheet. Those are guides. I took a spreadsheet, I was looking at it. These were assets that were $70,000, $80,000, $90,000 so I’m putting those at 55% at least. At least I’m going to put it at that amount and then run my numbers. I’d pick twelve months of PNI divide that by my pricing of what I would make a bid and see if the ROI makes sense. If the ROI is at 7%, 8% on a reperforming, I’m probably not going to buy it. I got to look at the equity. In that case, it’s a true foreclosure. I’m not to foreclose to make any money. I still want my return to be roughly in the mid-twenties on the back end if I foreclose so it’s at least worth me, worth my time. I’m making 10% and also worth my investor’s time.

The biggest thing you have to realize is you’re going to probably have to put some paint and carpet in each one of your assets to get it marketable, to get full value in there. You have to expect it. If you’re overpaying like they were talking about an asset being worth $139,000, if you put $30,000 into it and the guy was wanting $85,000. I’m like, “That’s still too skinny. It’s doesn’t make sense to me.” I have to get the highest point in the market to try to get my most amount of return. Why am I going to do any work to make $5,000 or $10,000 on a deal that takes a year? That’s not smart thinking to me. Stick to your guns on your pricing. Just because they want something and you can’t come to a point now, stick your guns. There are plenty of deals out there. There’ll be more getting to the market before too long. Follow up in the next 90 days. It will be very valuable to you. Let’s talk about performing notes. I see people like, “I’m going to make some bids into some performing notes.” A performing note is somebody who’s been making payments for a while now. A true performing note has got twelve months of seasoning. I don’t care if it was non-performing to begin with, but it’s got twelve months of seasoning on it.

Pricing Guides: If you’re going to be buying assets in a market that you’re going to rehab, you to take a look at things and expect some hidden costs.

Six months of performance, some people will look at it. What I will look at is off of yield. What I do when I’m figuring out my pricing, and this is a common thing, take your payments, take your twelve months of PNI, divide that by 12% or 15% yield. That’s usually what you’ll see most performing notes that are reperforming notes that we sell at 12% and 15% yield. Whatever that number is, that’s roughly what you’re offering and you need to take a look at that number compared to what their sales price is. That’s a performing note. It’s cashflow especially twelve months of seasoning or put some skin in the game or they are newly originated notes where they put some skin in the game. That’s what you have to look at for, 12% to 15% is what I want to see on my performance stuff. For me, that will make any money, especially if you’ve got investor money that you have available too at 6% to 8% in arbitrage difference. You can do that with your investment at 12%. It’s hard to make any money buying a performing note at a 12% yield, where you’re not going to make any money.

What To Expect In Rehab?

We have a question, “If you have to foreclose on a CFD, can you still keep the equity?” It depends on where it sells at the auction. If it doesn’t sell at the foreclosure auction and you take the property back, it’s yours. You’re going to put a bid in at the foreclosure auction. Honestly, if you’ve got to go to the foreclosure route and you’re owed $40,000 with your payoff and everything and it sells for $45,000, that $5,000 is going to go to the borrower, not back to you. It all depends on what your bid. If that’s above your bid and what you’re able to bid, that’s going to go back to the borrower. It doesn’t go back to you. You take the property back then it’s an REO at that point, you can sell it at that point. The question people always ask me is, “What do you expect to pay in rehab costs?” I don’t want to do heavy rehabs. That’s not my business model. If you’re a one-off investor and you’re doing this as a hobby and you don’t mind the rehab, that’s great. You can do the rehab aspect. That is not my business model. My business model has changed over the years.

My business model is I want to buy occupied assets. I want to get the borrowers reperforming as best as I can. If I do, then I will take the property back, but I’m trying to sell that as fast as possible. If you’re looking at assets that are going to need some work on that are outside of your hometown or a place where you’ve got friends and families, you’re probably hurting your business. It’s not in one, two or three markets where you’ve got great teams that you can put together to do those rehabs. If you’re doing a lot of one-off stuff, you’re actually penalizing your own business and holding your business back by being spread too thin across the board. How do I know this? Because I’ve been in those shoes in the past. You don’t want to be doing that. You want to be sticking your rehabs so you lead a couple of markets and be sure that there’s plenty of work.

I’ll give you an example. We discovered this in the Flint Market when we were up there doing our roadshow through Detroit. We were having breakfast, having coffee and doughnuts with Jennifer and Adam Adams outside of Flint. Adam was telling us about his Flint assets. He’s having a hard time getting rehab crews to come in from Detroit to do it. There weren’t a lot of people in Flint. They want to do the work they did. They worked through the notes because they were being so busy with what’s going on to Detroit. Keep that in mind if you’re buying in secondary markets. A lot of your labor costs are going up. Kristen talked about this earlier. She’s seen labor costs, especially in hot markets like Dallas and other areas go through the roof because it’s a supply demand.

There is a lot of demand for it and there’s little on supply. That’s also something to keep in mind when you’re looking at an asset, especially if it needs work. I would be pulling back on the assets that need any type of work because I don’t want to run into it, especially if it’s in a prime market or especially in a secondary market. I’m not saying you can’t get roofers. You can’t get some people to come, but it’s probably going to be more your local handyman versus a true GCN crew. You’re going to piece that work together and that’s not effective in the long run business model as well. We have a question and this goes back to CFDs. If you’re evicted, you do not worry about it. You take the property back, it doesn’t matter what the unpaid balances exactly, but if you have to foreclose in some states, you’ve got to go through a foreclosure route in different aspects. Then you have to keep that in mind. That’s going to be more a conversation with you and your attorney about what’s going on in that state and specific to the contract for deed law. In each state’s a little bit different when it comes to contract for deeds.

Let’s talk about if you’re going to be buying assets in a market that you’re going to rehab, you have to expect to take a look at things. You have to expect some hidden costs. Whatever your bid is, if you’re getting two or three bids on construction and stuff like that, you probably need to go to the middle row. You don’t want to go to the low routes on your bids because they’re going to undercut you and ask for more. It’s just the way it always has been. I’ve never had a low-ball bid ever come in on budget. I never had that happen. A high-ball bid, you don’t want to do that either. Somewhere in the middle is what you want to do. Keep that in the middle bid especially in rehabs because that’s what you’ve got to look at it.

Pricing Guides: The more straight and narrow-focused you can be, the better off you’ll be in the long run.

What’s the timeframe for that? What’s the market doing? What are the days on market? Just because you can pick up an asset cheap, it doesn’t mean it’s a good deal until you start looking at days on market. I had an investor coming one time. He’s like, “I’m buying this asset in Texas.” Getting the Texas asset, like $0.30 of value. I’m like, “Where’s it at?” “La Grange, Texas.” I’m like, “You know where La Grange is at?” “Yes, is that where ZZ Tops is from?” I started laughing. I was like, “What’s the value of the asset?” “It’s about $80,000 ARV.” “That doesn’t make sense. What’s it worth right now?” In your note business, it’s all about what the value is as is right now. As is, not ARV, not after repair value. A lot of fix and flippers are getting in to note business, going off their MAOs, they used to call. The maximum allowable offer on a fix and flip, which would have been ARV times 70% minus repairs and money costs. That would have been your highest bid. You don’t do that in the note business. That equation does not work. It’s not computable with notes. It is if you’re overpaying and you’re over hurting, especially when you take the asset back or don’t take the asset back in the mod.

Look At The Market

Going back to this La Grange, that guy’s making $0.30. It’s worth 60. He needs about $10,000 worth of work. I’m like, “What have you’ve been in cost?” “They’re going to fund it to me at 12%.” I’m like, “It’s going to hurt.” I go, “What are the days on market?” He goes, “368 days.” I’m like, “You have to expect to hold that asset for a year to get that thing sold. That would be the biggest red flag to walk away.” Walk away from the asset, be done with it. Another thing that’s important in your pricing is looking at the market too. If you see a lot of empty houses or trashed out houses on your block, it’s bringing the value down. No matter what their BPO says or their Zillow or Zestimates or their AVM says, take a look at the comps. See what they’re looking at because oftentimes they’re buying these comps and big bolts or they’re adjusting the value to best hit their number.

I know the company that actually adjust the dates of the comps and you can’t find the comps anywhere. They actually go in and adjust the dates on their proposal values to escalate the values. That’s straight out fraud if they can’t provide true comp and stuff like that. One thing is to get a CMA, but when you pull a true BPO and the date adjusted on sales and timeframes on sale, that’s straight up fraud. You should not be doing business with people like that. That’s what I can say. Going back to the original thing, I can recommend anything in the note space on the CFD space. I always say pick out a couple of markets. I start off by saying pick up five states. Most of you need to probably focus on two to begin with. Two or three and get to know that state. Know the timeframes. Know your attorneys. Get to know your vendors in your local area.

Talk to other investors in a mastermind group or our WCN crew page in those pages, just talking to people who are using things. Those vendors will often help because it’s economic scale. If they can get business from four people, they’re glad to do it and keep the price that makes sense across the board. You don’t want to be trying to do at rehabs. As Chris Seveney, Dan’s Zitofsky and a lot of people are saying, focus on one or two markets. Get to know that market. Reach out to the vendors, reach out to the turnkey. Align yourself with like Michael Jordan from Strategy Property Group out of Detroit to help you out with a rehab. That’s a great group. Dave Payerchin from Columbus Houses out at Columbus or any of our buddies that are doing turnkey stuff in many parts of the country.

Focus on those. Those are great people to work with. In some cases, they may not make sense for you to buy debt in that place and rehab, it may make better sense for you just to buy a rental or turnkey in those cases. That’s fine. It depends on what your schedule is like. If you are rehabbing assets, you’re going to need it to be a full-time. You can’t do that on a part-time schedule because you will run rampant in your foreclosures and your rehabs will take forever to get done. I’ve seen where people have sent over values and they had three BPOs and they went with the highest one. They left the other two BPOs in the file, even though those values came along. There are a lot of people that like to adjust and escalate bid, you have to be careful of that.

Cleveland is one of those cities that is not making it beneficial to fix and flip because they put a $10,000 bond on every new asset. Every house that you’ve got to take, it doesn’t make sense. They’re making it possible. Other areas of the country if your buying from Seattle, if it turns it around, you have to pay somebody to leave. There are things that are going on in different parts of the country that don’t make sense. That’s why the biggest bang for the buck is not those higher end cities like that. Cleveland’s not higher end but Seattle is. Focus on your markets that make sense. Focus on assets where somebody is living at them. Somebody has made some payments. Maybe they had a financial hiccup. I got a phone call from a borrower. He actually called the office. I’ve answered the phone. He was an older guy on the phone, knew that immediately. His wife has been going through cancer. He’s been sick. He’s been working with the city on the utilities, paying the taxes and stuff like that. He has been late and he got a letter from our attorney to start the cancellation. He picked up the phone and called, he tracked us down.

Meeting Halfway

I had a nice conversation with the guy talking about things. I said, “That’s fine. I’m going to put you in touch with my asset manager who handles that stuff. We can figure out what your payments are. We can create something that makes sense in a win-win and stuff like that.” I’d much rather keep somebody in the house who’s taking care of the house, who has a vested interest, has been there for five years, six years, trying to help them out as long as they’re willing to meet me halfway. What’s that mean to me halfway? Let’s start making a payment plan. Let’s get you started on something. I don’t necessarily need to take your property back. I’d rather be the bank on it. That’s what so beautiful about being a bank is cashflow is king. You do have equity because you bought the note at a discount. You’ve got that note equity in there to do a lot of stuff with over the next six or twelve months. If they do, stick their head in the sand and they won’t call you back, then you have the foreclosure aspect or cancellation of contract.

There are a lot of things you can do. That Stair-Step Model is that guide. It’s a guide for you. It’s not a hard-fast rule. It’s a guide and you don’t know if it’s going to be accurate depending on what the seller expectations are. That’s why I was always asking, get pricing expectations before you do anything. I met a guy the other day, “Do you want to jump in on this deal? Help me out with them.” I’m like, “What’s the pricing?” He didn’t know pricing expectation. First and foremost, before you send me anything, I don’t care about the assets, I don’t care about the property. Until you have pricing expectations, it’s not worth me wasting my time on. Until you know what the price is, you don’t have anything. If they won’t give you pricing expectations, at least they tell you that highest and best. I’m not going to waste my time with it most of the time unless I’m going to buy in bulk. If they want the best and highest ton an auction basis, that’s fine. Let somebody take the asset data. I’ll wait and follow up a week after, “Did you sell that asset? What was the final bid price?” If they don’t close, here is where my bid came in at or I would bid individually and go from there. I’m not going to get an option fighting point like a lot of people does for the most part.

What I do like is if they’ve got strike prices, “Here’s what we’re looking for, here’s where we’re at.” Then we can make some things happen and you’ll see more of that happening. We still got two and a half months left in the year and it’s about to get crazier as we get closer to the end of the year. Keep that in mind. Follow up with your bids, your bids came in low. You think that people are smoking crack. That crack will wear off. In reality, it would sit in hopefully before December 28th. Hopefully, it was helpful. Use the Stair-Step Model as a pricing guide. It’s going to vary a little bit up or down depending on a lot of things. If you see people bashing the Stair-Step Model, ask them how are they coming to pricing and I guarantee you they won’t have an answer, then I guarantee you they’ll probably be overpaying.

I’m not saying pricing is not gone up. I will agree to that in a lot of faith and places, but you have to realize stick to your guns. You’re in the note business, not in the REO business, not in the fix and flip business and not the rental business. A lot of people want to get into one thing and they ended up doing four or five other things. That’s fine as long as you know that and you’re prepared for that. Keep in mind, the straighter and arrow-focused you can be, the better off you’ll be in the long run. Go out and make something happen. Go make some offers and we’ll see you at the top.